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Serving notices: the requirements for contractual compliance

May 2017 - Issue 93

Notice clauses are usually found at the end of commercial contracts and so can often be overlooked. Whilst a Scottish case, Hoe International Limited v Martha Goodnow Andersen & Another provides useful guidance regarding the need for strict contractual compliance in relation to a notice clause.

Background

Hoe International Limited (the Buyer) purchased a company from Martha Goodnow Andersen and Sir James Aykrody (the Sellers). The company subsequently received notice of a claim against it by a third party, which the Buyer contended was a breach of warranties given by the Sellers.

According to the share purchase agreement between the Buyer and the Sellers, the Buyer was required to give notice to the Sellers of any such claims before it could raise a breach of warranty action against the Sellers. The notice clause specified that the notice had to be sent: 1) by personal delivery, pre-paid first class post or recorded delivery; 2) marked for the attention of a specific person; and 3) to a specific address.

The Buyer’s agents subsequently served a notice on the Sellers’ agents by DX (legal courier) and email, enclosing a copy of the letter of claim received from the third party. The third party’s claim was subsequently settled and the Buyer raised an action against the Sellers in the Court of Session for breach of warranty.

The Sellers argued that the breach of warranty claim should not succeed because the notice was invalid as it did not contain sufficient information and it was not in accordance with the notice clause.

Did the notice contain sufficient information?

Last year Lord Woolman found that the notice did contain sufficient information as it provided all the details known to the Buyer at the point the third party’s claim was received. The Inner House, the appeal court, agreed.

Was the notice validly served?

Lord Woolman had found that the notice clause specified exactly what constitutes a valid notice and that the parties did not intend to allow deviation from that. As the notice had been sent by DX and had not been marked for the attention of the person specified in the notice clause, it was invalid.

The Inner House, however, focussed on the purpose of the notice holding that the more drastic the consequences of a notice, the greater the need for strict compliance with the notice clause. Here the notice was simply informative in nature. Crucially, the Sellers had not been prejudiced as a result of the alleged non-compliance with the notice clause. As the notice had actually been received by their solicitors, the means of delivery was of no real significance and it didn’t matter that it wasn’t sent to the identified person. The court found that DX was a form of personal delivery and therefore the notice had been sent in compliance with that part of the notice clause. It was therefore held that the notice had been validly served and the Buyer was entitled to proceed with the warranty claim against the Sellers.

Key Points

The Inner House took a pragmatic approach in this case, with the decision turning on the fact that the notice was informative in nature and that the Sellers had not been prejudiced by the failure to comply with the notice clause. This judgment leaves open the possibility of a challenge by a recipient depending on the purpose of the notice.

Our advice remains that you should carefully check your contract and seek legal advice before serving any notices to ensure that the notice itself, and the service of it, complies with the notice clause. This is especially important when the notice is one with “drastic” consequences such as a termination notice under a commercial contract. Finally, you should ensure that your terms and conditions and new contracts provide for the service of notices by commonly used and up to date methods. Following these steps mitigates the risk of you serving a notice later deemed to be invalid and/or your having to expend the time, money and effort of arguing about it.